Higher mortgage rates mean Long Island home sellers face a shifting market

Long Islanders looking to sell their homes are facing a new reality following two years marked by record prices, bidding wars and sellers waiting mere hours — not weeks — to find a buyer.

 The average long-term mortgage rate more than doubled in the past year, rising to 6.66% as of Thursday, just shy of the previous week's 6.7%, which is the highest it has been since 2007. Just in the past month, the average 30-year fixed rate jumped by a full point.

The spike in mortgage rates, which started a year after they hit a historic low of 2.65% in January 2021, has jolted sellers. On the one hand, rates have bludgeoned affordability for homebuyers, testing their budgets for monthly mortgage payments. Some will undoubtedly have to shop at lower price points while others might postpone their purchase.

Sellers are also looking for their next place to live and might need to accept a higher mortgage rate to do so. That could make homeowners who bought or refinanced in recent years think twice about listing their homes. About 80% of New York properties with a mortgage had a rate of 5% or less in the first quarter of this year, according to a September report from real estate brokerage Redfin.

Higher rates have suppressed new listings around the country, said Taylor Marr, Redfin’s deputy chief economist.

“Sellers are in a tough spot,” Marr said. “These are people who, if any of them were to sell, they’re trading in one low rate for a significantly higher rate, and that creates sort of a lock-in effect where they feel like it’s best just to stay in place and not sell." 

Local real estate agents and brokers said this new reality for sellers will force them to reset their expectations from the heady days of the pandemic era real estate boom and return to methods used by Long Island sellers of the past to find the right buyer.  

Leaving Long Island

Carolyn Bitner, 66, and her husband Karl, 70, set out early this year to sell their home of 25 years, a three-bedroom, 3,100-square-foot Colonial in Eastport, as they plan to rent a smaller house in New Hampshire. The move is necessary to reduce their living expenses, which Bitner estimated have more than tripled since they first moved in, and the responsibility of keeping up a property that's nearly an acre — not to mention their roughly $15,000-a-year property tax bill.

"There's no way we can stay on Long Island with the cost of living," Bitner said.

They listed their house in February at $745,000, with the hope it would fetch $710,000, but struggled to find a buyer. They cut the price to $698,000 in June and then to $598,000 in July before accepting an offer for $610,000 in August.  

“When you’re looking at retirement, that’s a huge disappointment,” said Bitner, who retired from her role as a production manager for a cosmetics industry trade show in 2016 and worked in part-time roles until she stopped working during the pandemic. “But I’m looking at the long haul, [which] is we have to get off Long Island. You have to look at what outcome you ultimately want to achieve.” 

Choosing a price is a delicate balance for homeowners and their agents at a time when mortgage rates have risen so quickly, said Kevin Leatherman, a real estate broker and owner of Leatherman Homes in Rockville Centre. 

"The problem is we're not in a buyer's market. We're in a shifting market from a seller's market to a normal market," he said. 

That notion is supported by recent data. One measure watched by the real estate industry, months of supply, measures how long it would take to sell all the homes on the market at the current pace of sales. In August, Long Island had just 2.4 months of inventory, indicating a seller's market, based on the number of sales that were in contract that month, data from OneKey MLS show. That is virtually unchanged compared with the previous year.

Five to six months of inventory typically indicates a balanced market between buyers and sellers. The Island hasn't reached that threshold since May 2020, when the pace of sales was affected by the first stage of the pandemic. 

Long Island home prices for deals that closed in August were slightly below record highs set earlier this summer, showing signs they had peaked for the year ahead of the fall when the real estate market typically slows. 

But prices are still up from a year ago. The median sale price in Nassau County rose 4.5% to $700,000 from the previous year, while the Suffolk median increased 6.6% to $565,000, according to OneKey MLS. The pace of appreciation has slowed in both counties and prices for pending sales, which have not yet closed, indicate deals will close at a lower median price in future months. 

The median pending price declined each month from June to August in both counties. It was $660,000 in Nassau and $535,000 in Suffolk in August. 

Highs and lows

Deidre Drinkard-Willingham, 56, said she and her husband David Willingham, 69, have been looking to move South since she retired last year but were worried their four-bedroom high ranch in Brentwood might not command the price they wanted.

“When 2022 came, I thought I missed the market,” Drinkard-Willingham said. But when the couple put their home on the market for $469,900 in July, they got several offers, and they closed on the sale earlier this week for $520,000.

They’re now renting a two-bedroom apartment in Hauppauge for $3,250 while they plan a move to the Jacksonville, Florida, area.

“It was a lot more than my mortgage, but it is what it is,” she said. “It’s temporary.”

The couple was able to sell without making costly renovations one agent had suggested. But that may not continue to be the case as buyers gain more negotiating power.

Vanessa Gonzalez, a real estate agent at Realty Connect USA in Hauppauge, said she remembers explaining to a buyer at the height of the market that if their goal was to land the deal they shouldn't raise issues, such as asking a seller to replace gutters. Listing agents at the time were quick to note they had 20 other offers to consider.

“You couldn’t even negotiate,” she said. Buyers are starting to ask that those repairs be made. “It’s a strong market still, but now the buyers are gaining their power as consumers.”

That has led to frank discussions with sellers, Gonzalez said, in which she notes three key factors — location, condition and price. 

“If you’re not willing to do something with the condition, you have to do something with the price because you cannot move the property somewhere else," she said.

One of Gonzalez's clients, Michael Hutter, 69, and his wife Dana, 68, closed this week on the sale of their four-bedroom home of 21 years in Patchogue, which sits a few blocks from the village’s bustling Main Street. Hutter said the house sold for about $30,000 more than he had expected,  helping the couple downsize to a $310,000 condo in Ridge.

But along the way they dealt with the heartbreak of a buyer backing out at the last minute.

"It was highs and lows," Hutter said, adding "expect it to be a stressful situation for a few months." 

Seth Pitlake, a real estate agent with Douglas Elliman in Merrick, said he recently had a deal that was just awaiting a seller’s signature when the buyers backed out because their interest rate had changed from 5.5% to almost 7%. Such a change could add several hundred dollars to a homeowner’s monthly payment.

“That just put a scare in their head, and the deal fell apart,” Pitlake said.

Andrew Russell, founder and owner of RCG Mortgage, a mortgage broker in Hauppauge, said he's advising clients to lock in their rate as soon as they find a deal with a monthly payment they can afford.

"I've worked with over 10,000 clients, and I've never seen the day-to-day swings" in interest rates that are happening now, he said. "I've never seen rates go up in one week by a half a [percentage point] so many times over a handful of months." 

Sellers need to consider making repairs ahead of listing because buyers are increasingly searching for homes that provide value at current prices, Pitlake said.

“Your expectations have to be that the buyer is no longer coming and knocking on your door and taking your house as it is with no negotiation,” he said. “We're going back to the old days where if there is an issue with the house or maybe there is an upgrade that needs to be done, the buyer is not shy about asking any longer because they know no one is waiting on line behind them to buy the house.”

'Compelling pricing'

The shifting market has led price cuts to become much more common than during the pandemic real estate boom, said Gail Carillo, an associate broker and team leader at Coldwell Banker American Homes in Ronkonkoma. Volatile interest rates have also made it more important for agents to check with lenders to ensure buyers can still afford the house if their rate has changed. 

She’s advising sellers to be realistic about their pricing, not reaching for what they think they might have gotten offered in the spring.

“Compelling pricing works,” she said. "If you price your house a little under the market value, historically, you're going to get above the market value. You have a bigger buyer pool. You're going to create an excitement, and they're going to start to bid it up. If you price your house too high, you will chase the market down. And by the time you get to the recommended list price, it’s going to be lower.”

Sellers also need to listen to what the market is telling them, which agents can interpret through attendance at open houses and requests for showings as well as through web traffic on online listing pages.

“Let’s say we have lots of activity, revolving door, but no offers,” Carillo said. "That means the price is wrong. If there’s no activity, that means the price is wrong.”

To find the right price to list a home, agents are narrowing the scope of what they consider a comparable sale. Shaughnessy Dusling, an associate broker at eXp Realty in Hauppauge, said she had been using sales from the past 12 months at the height of the market but has recently started using only sales from the past 90 days to inform her pricing strategy.

At the right price, she hasn’t seen much drop off in the market.

“If things are priced correctly, they’re still selling in a multiple-offer situation," she said. "Things that are priced incorrectly, meaning the sellers or listing agents got a little bit greedy, are tending to sit a little bit but they are ultimately still selling.”

Chris Lowenberg, 34, said he was a little worried when he and his wife Alexa, 31, put their three-bedroom town house in Bay Shore on the market in July when mortgage rates were around 5.5%.

The couple wanted a larger home where they could raise their 16-month-old son, but for six months they couldn't land a sale, with some homes they saw selling for $100,000 above the asking price. They eventually found a four-bedroom Colonial in Bay Shore for $701,000, which was more than Lowenberg wanted to spend but allowed them to upgrade and add a backyard for their son and Wheaten terrier to enjoy. 

They then listed their town house at $375,000 and received 20 offers within a few days, selecting one at $428,000, and plan to close later this month. Lowenberg, a partner at Hauppauge accounting firm Fuller Lowenberg, said he was fortunate to lock in a mortgage rate at 4.75% before the recent spike and benefited from the appreciation on the town house, which he bought for about $275,000 five years ago. 

“Without the appreciation and if I hadn’t had something to sell, I don’t know if I would have been able to buy the house I’m buying now,” he said. 

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.